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3 December 2008 Small firms ‘reluctant’ to pass on VAT cut, warns business group

Small retailers may be reluctant to reflect the reduction in VAT in their prices because of the ‘extra cost and bureaucracy’ involved, a leading business group has warned.

The Forum of Private Business (FPB) claims the additional time and expense created by implementing last week’s 2.5% cut in VAT will ‘vastly overshadow’ the benefits of the diminution.

‘The reduction in VAT to 15% seems pointless, when, for example, a product that sells for £4.99 […] will retail for £4.89 […] after the VAT rate has been reduced,’ commented Nick Palin, the FPB's Director of Finance. ‘All [this reduction] does is increase the amount of time smaller retailers have to spend wading through bureaucracy.’

As a result, the organisation said the VAT cut – which is intended to boost consumer spending – could ‘backfire’ as it is unlikely to convince smaller businesses to slash their prices.

The British Retail Consortium (BRC) has expressed similar concerns. BRC Director General, Stephen Robertson, said: ‘IT system changes, replacing shelf labels and stickering-over prices on packs will be a mammoth and costly task. Small retailers will find all this particularly difficult to accommodate.’

The new lower rate of VAT is effective from 1 December 2008 until 31 December 2009.

To discuss how the changes may affect you, please contact us.